When the new Governor and legislature take
office on January 1, they will inherit a teetering economy and a state
government in fiscal crisis. At the same time, there exists a new potential for
much-needed change, a window of opportunity through which they must aggressively
navigate the state if a more prosperous Michigan is to be assured.

Michigan sorely needs a clean break with the past. No
gimmicks, no empty rhetoric, no expensive promises, no flashy photo
opportunities--just bold action and a new direction.

The politics of special interests and vote-buying with
public money must be curtailed. The spiral of rising government spending
followed by new and higher taxes must be reversed. The private sector, burdened
by the worst tax climate of the Great Lakes states, should be revitalized. State
government must be downsized and streamlined so that

Michigan citizens can once again enjoy an environment
conducive to work, job creation, investment, entrepreneurship, good schools, and
safe streets.

As an institution committed to genuine change, The Mackinac
Center is pleased to offer this prescription for a Michigan renaissance--the
first of many advisory documents the Center expects to release in coming months.
The bulk of this document consists of 20 points presented in summary form; more
detailed work can be found in already-published Center studies or in others to
be published at a later date.

We believe that a brighter future for Michigan will not
come from any business-as-usual attitude. What is required is a revolutionary
approach, one that encourages private initiative and free markets and less
government. Mr. Engler's victory over a two-term incumbent on a platform
emphasizing lower taxes and less government creates a mandate for change. He
should not squander his chance to make history by caving in to the status quo
and the special interests who created it.

Any list of suggestions woefully inadequate if it did will
soon inherit. Clearly, some estimates, it may exceed for our government
leadership would be not address the massive deficit they it is the most pressing
challenge. By $1 billion in the current fiscal year.

The worst way for the new chief executive and legislature
to handle this problem would be to raise taxes. That would quickly expend the
good will of the voters and it would injure the fragile Michigan economy as
well. The recent federal tax hike, coupled with soaring energy prices and a
pending recession, mean that the one option Michigan must implement is to reduce
state spending.

President Bush promised no new taxes and later reneged
under fire from congressional opponents. His credibility with the American
people suffered as a result. In Virginia, newly-elected Democratic Governor
Douglas Wilder attacked a deficit there this year by cutting spending and hiring
and adhering to a pledge to hold the line on taxes. The model that a Governor
Engler should emulate is that of Wilder, not Bush. It is encouraging that since
the election, Engler has reiterated his pledge and a firm commitment to keep it.

Even without a deficit, belt-tightening is overdue in
Lansing. State spending grew much faster than either inflation or personal
income in the 1980s. Put another way, Lansing's outlays rose by more than 70
percent during a decade when population actually fell by almost 1 percent. Many
of the following recommendations address Lansing's spending addiction and would,
if adopted, help mightily to erase the looming deficit. (Please note:
numbering does not infer any order of importance or priority.)

1. Rein in the Commerce Department. Under the
umbrella of "economic development", the Commerce Department
administers a staggering array of programs that are barely disguised boondoggles
for special business interests. The Strategic Fund, the Urban Land Assembly
Fund, the Rural Renaissance Fund, the Chrysler Jefferson/Oakland Technology Park
grants, the Growth Margin consulting services subsidies, and much of the Detroit
and Outstate Equity programs are prime examples. They, and a host of other
similar rob-poor-Peter-to-pay-well-connected-Paul schemes should be axed, saving
tens of millions of dollars.

2. Create a Michigan "Grace Commission."The new Governor should immediately name a special panel of largely
private sector individuals to do at the state level what the "Grace
Commission" did a few years ago at the federal level: search out and
identify what surely must be an overdose of waste and pork barrel expenditures.

Why must the state dole out millions in subsidies to
artists, wine research and festivals, equestrian programs, the Detroit Symphony,
big airlines, basketball stars, displaced homemakers and auto-mechanic training
programs for ex-convicts? Why shouldn't the state eliminate the $800,000 subsidy
to the Silverdome and encourage Pontiac to sell the structure? A commission such
as we recommend could raise the questions that have gone neglected for years
about spending throughout state government.

3. Establish a Privatization Panel. Another
panel should investigate the opportunities to improve the quality of services
and save taxpayer dollars through privatization. Michigan currently lags behind
other states in implementing this promising option.

4. Deregulate Trucking. Regulation of
Michigan's intrastate trucking industry costs jobs, raises prices for consumers,
and puts companies at a disadvantage vis-a-vis competitors in neighboring
states. It makes no sense to require a Michigan-based firm to charge more to
carry goods from Holland to Grand Rapids than a non-regulated Illinois firm
charges to carry similar freight from Chicago to Grand Rapids. One state grocery
firm estimates that its trucks are empty for five million of the twelve million
miles they log each year. Free Michigan trucking, and review all other
existing regulations on Michigan enterprise, retaining only those which stand up
to rigid cost-benefit analysis.

5. Abolish the HOST program. Initially sold
as a way to help first-time home buyers save for their down payments, the Home
Ownership Savings Trust is an ill-conceived scheme which obligates taxpayers to
pick up the difference between bond market interest rates and an arbitrary,
statewide housing inflation index. It is symptomatic of the expensive and
counter-productive activism that has characterized state government in recent
years. The state could do a better job in assisting home buyers if it fulfilled
the Engler promise to cut property taxes and cap assessments.

6. Pursue Tax Reform. In addition to
following through on his property tax pledge, the new Governor should press the
legislature to abolish the state's burdensome inheritance tax and decrease the
Single Business Tax rate as a way to spur small business. The new Governor
should resist any effort to expand the state's sales tax, particularly to
services, or to increase the gasoline tax. He must also address the problem of
rising property tax rates, not just assessments.

7. Privatize the Accident Fund. There is not,
and never has been, any convincing case for state government to be in the
workers compensation insurance business. Nothing in the Constitution requires
it, and neither economic theory nor experience suggests that politics and civil
servants can run a business more efficiently than private enterprise. The
mistake of the Attorney General and the courts in "nationalizing" the
Accident Fund in 1989 must be reversed and the Fund's status as a wholly private
company assured by appropriate legislation.

8. Reconsider MET. Serious questions have
been raised about the actuarial soundness of and need for the Michigan Education
Trust. It needs a comprehensive and impartial audit, including a review of the
trust's basic assumptions about future tuition rates and investment returns.
Realistic assumptions would probably raise MET prices to levels which would not
be competitive with private alternatives. In place of MET, educational
investment accounts for individuals ("educational IRAs"), expanded tax
credits for parents paying tuition, or a savings bond program, or some
combination of these three, could be implemented. MET contracts could also be
sold to financial firms in the private sector. If MET is retained, provisions
should be added to prevent its political promise from ever becoming a taxpayer
obligation or a bludgeon with which to threaten the autonomy of the state's
universities.

9. Review State-Mandated Health Benefits.
Such mandates are pricing as many as 200,000 Michiganians out of the health
insurance marketplace. The state should consider abolishing some, and lowering
the required dollar amount of coverage on others. For example, Michigan drivers
must purchase unlimited medical benefits under the state's no-fault law,
regardless of whether they need or can afford them. They should be allowed to
choose lower limits of liability at lower prices under the no-fault law.

Consumers in the medical insurance marketplace
should be free to pick the package of benefits which best suits their particular
needs and desires. The state should refrain from adding new mandates, especially
those whose benefits can be demonstrated to outweigh their costs.

10. Implement Corrections Privatization. The
fastest-growing category of state government in the 1980s was corrections.
Michigan must learn from the experiences of more than a dozen other states. To
save money and get the job of incarceration done even more effectively, the
state must clear away the legal barriers which deny counties the option to
contract out the operation and management of their jails. Wayne County Executive
Ed McNamara was correct two years ago when he called upon the state to allow his
county to consider privatization of a new jail.

Additionally, the state should copy the success of
other states and implement at least some aspects of privatization within its own
prison network. We estimate this last suggestion alone could, in time, save the
state more than $50 million per year.

11. Repeal Michigan's Prevailing Wage Act.
This act, passed in 1965, provides that only union scale wages may be paid to
construction workers on all state projects. In 1978 it was extended to all
school construction receiving financial assistance from the state's Economic
Development Corporation. The Department of Labor has even insisted that it be
applied to privately-built construction which is to be leased to the
state. Yet another extension has been Labor's fixing of apprentice ratios on
state contracts.

This is costly special interest legislation, pure and
simple. It has the effect of inflating construction costs, according to one
study, by more than 20 percent. Wages should be freely determined in the
marketplace via competitive bidding among all firms, whether they employ union
labor or not. Repeal the act, and rid the state of its costly extensions,
immediately.

12. Enact Tort and other Legal Reforms. The
new Governor should press the legislature to set strong but reasonable
limitations on non-economic damages in liability cases; introduce measures to
discourage frivolous lawsuits and excessive damage awards; encourage alternative
dispute resolution mechanisms such as grievance hearings, arbitration, and
mediation to help avoid time-consuming and costly courtroom litigation; limit
the right to sue for wrongful discharge to instances where the right is spelled
out in written contracts; and make plaintiffs more responsible for their own
behavior by following the lead of states where comparative negligence is not
applied when the plaintiff is more than 50 percent at fault. Such changes would
be a healthy start; other reforms in this area will undoubtedly be needed.

13. Dialogue, not Bail-outs, for Detroit. A
new relationship is required between the state and Michigan's largest city. The
new Governor should be eager to talk with Detroit's government and private
sector leaders, and be empathetic with the city's problems. We do not need a new
round of Detroit-bashing. However, this relationship must emphasize that the
city's heavy reliance on favors and subsidies from Lansing must come to an end.
Detroit cannot continue to alienate its own taxpayers with high-tax,
interventionist policies and then expect to rely on the taxpayers of the rest of
the state to pay for the consequences with no corresponding accountability. The
city must be pressed to roll back its monstrous property tax burden, curtail its
habit of spending tax dollars for businesses and other special interests,
control crime in the streets, and reform its dilapidated educational system
through choice and competition. City officials should also be urged to establish
its own "Grace Commission."

14. Stop State Government Competition with the
Private Sector. In a growing number of areas, Lansing is competing
head-on with private enterprise. Sometimes this involves such things as sales of
computers or recreational facility time by the universities, and in other cases
it involves more direct state agency intrusions. For instance, the Commerce
Department provides certain subsidized services, such as business management
consulting, that private firms provide. The state should not be considering
building its own truck plazas along our highways, as has been suggested. A full
review is needed of all the instances where this competition is occurring.

15. Adopt "Schools of Choice."
Gov.-elect Engler has expressed support for at least a limited form of
"schools of choice." He should go further. Cities like Detroit would
especially benefit from breaking down the district barriers between public
schools and introducing a voucher plan and/or tuition tax credits
incorporating private schools as well. The Milwaukee experiment now underway
in that Wisconsin city serves as a modest prototype for what Michigan needs.
Statewide, schools of choice and a voucher program would inject powerful new
incentives for academic excellence, parental choice, market-based competition,
and innovation.

Other educational reforms the new administration
should undertake are alternative certification, merit pay for good teachers,
empowerment of local school administrators with more authority, and a reduction
of the state's 2,000-employee education bureaucracy. As Mr. Engler reorients the
state's educational priorities and revamps property taxes, he should ignore any
egalitarian impulse to lift up the lesser-funded schools by dragging down the
better-funded ones.

16. Promote Volunteerism. The important role
of voluntary action in society should be encouraged by an activist Governor, and
could be useful in picking up the slack where state programs are curtailed. The
Governor should never miss an opportunity to cite the ways in which people and
communities can solve problems on their own, and put the spotlight on those who
are actually doing it. This could be done by various means: personal appearances
by the Governor, a private sector panel set up to foster and highlight voluntary
action, a monthly award program for especially noteworthy cases, etc. Certain
tax credit initiatives may also be viable options.

17. Expand Enterprise Zones. Currently, only
one city in the state--Benton Harbor--qualifies under the state's enterprise
zone law. The qualifications should be eased, so that other depressed areas
(Detroit, Flint, Pontiac, Saginaw, Ypsilanti, and Inkster, for example), can
take advantage of the program. Adjustments should be based not just on how high
an area's unemployment is or how many businesses have closed, but also on how
earnestly local government has moved to cut the burdens it imposes upon the
private sector. Otherwise, a community could qualify for state tax
advantages without scaling back its own damaging, high-tax policies.

18. Cut Staff Size. Michigan has the third
largest Governor's office staff of the fifty states, with seven employees
spending $355,840. California's governor, by comparison, has just 5 1/2 on his
staff with a budget of $200,000. When Gov.-elect Engler takes office, he should
set an example for state agencies by cutting his own staff by at least two
employees and shaving a minimum of $100,000 from their budget. He should then do
all in his power to force the bloated state payroll down, department by
department.

19.Promote
Welfare Reform. Michigan has a workfare program on paper but it has been
substantially diluted in actual practice.It
should be tightened up by enforcing the work requirements.

In all social service programs, the state must refrainfrom raising recipients' expectations beyond the financial ability of the
state to deliver. Medicaid is an example of a program where the state has been
over-promising and making up for that by short-changing providers. There is a
need for more efficient use of current resources and a need to explore central
staff cuts in Lansing as one way to achieve that.

Additionally, the state should encourage more local
initiative in welfare programs. General Assistance should be returned to the
counties where administrators are closest to the poor, so long as the counties
are provided with the funding to fulfill the assignment. We recommend also that
counties be given an incentive to help the poor and do it efficiently by
allowing them to split any savings 50-50 with the state. In the process, they
must also be given substantial discretion to spend the money as they deem it
appropriate.

20. Rely on Markets and Localities, not Mandates, in
Handling Certain Environmental Matters. In the area of solid waste
disposal, Michigan must recognize the diversity of its communities and refrain
from imposing top-down, statewide regulations which ignore that diversity. The
development of genuine markets for recycled products must be encouraged as
opposed to mandates from Lansing. (A comprehensive study on this will be
released by the Center in mid-January.)

This also implies the possibility of the regionalization of
waste management (a multi-county approach) that the state government should not
discourage. The components of landfilling, composting, recycling and
incineration should develop locally and/or regionally, not statewide.

Finally, we believe that watershed management,
hazardous waste management, and spill response activities should also fit into a
more local, or regional framework, with considerable potential for delegation of
certain aspects of them to the private sector. In short, we favor a regime of
"many local laboratories," as opposed to a single, state-imposed
master plan.